Arbitration As Protection Against Class Actions

Today the Supreme Court gave a powerful tool for employers to avoid collective and class actions when it overturned the 9th Circuit's decision in ATT Mobility LLC v. Concepcion (4.27.11) [pdf]. Justice Scalia writing for a sharply divided court, split on the now familiar lines, rejected attempts by states (in this case California) that would prohibit arbitration agreements which prohibit class treatment of claims.

Here, it was a consumer agreement under a system that could hardly be called unfavorable to the individual, in fact the district court had found that the individual couple who were attempting to lead a class action over the purchase of a phone, were undoubtedly better off in arbitration than as members of a class action that would last several years and likely result in a nominal payment to class members.  Still to be fair, it is also hard to argue with the point made by Justice Breyer in dissent that it is unlikely that many lawyers would have been interested in taking such a case on an individual basis.

On first blush, given the rage of FLSA collective actions and the desire for larger systemic class actions reflected by the Dukes v. Walmart case, every company that does not have in place a requirement that all disputes be settled by arbitration, and in that arbitration agreement, a provision that prohibits class treatment, will now be considering it again.

This is not to say that arbitration is a panacea ---the cost advantage is being lost as more and more arbitrations are proceeding just like a lawsuit that is being litigated in court, and the lack of any ability to effectively appeal the decisions is a serious danger,  both of which have to be weighed against the risk of large collective or class actions.  What today's decision permits is a re-calculating those odds with more certainty that you can accomplish the aim of defusing collective/class action liability if you are willing to pay the price of accepting the downsides or arbitration in individual cases.

Everyone has and continues to wait with concern the Court's decision in Dukes v. Walmart, which offers the Court an opportunity to put parameters on broad scale class litigation if it wishes.  It might be argued that today's decision augurs well for the employer community on how that case may turn out. Many employers may well wait until July when that shoe drops to do the recalculation between barring class/collective actions via arbitration or continuing to take their chances in the court system. Assuming the Court decides that case fully, it should at a minimum give even more certainty when making that calculation.

Besides companies engaging in that rebalancing, the other thing that is likely to happen is renewed talk about passage of the Arbitration Fairness Act, which would ban pre-dispute arbitration agreements between employers and employees (and also with consumers and in franchise agreements.) It seems unlikely that bill will pass during this Congress, but the there will surely be more discussion.

If the American Arbitration Association were a traded stock today, its price would be soaring.